The original trigger for the equities sell-off was a sharp rise in U.S. bond yields late last week after the jobs report data showed U.S. wages increasing at the fastest pace since 2009. That raised the alarm about higher inflation and, with it, potentially higher interest rates. The Dow Industrials dropped 666 points on Friday. Yesterday, the Dow dropped nearly 1,600 points in the “biggest intraday decline in history” and closed down 1175 points, the biggest single day point loss in history. The 4.6% plunge was the index’s worst day since August 2011 and knocked it into the red for the year. On a percentage basis, the losses didn’t even crack the Top 20, but the losses were still significant. You could have worked 31 years in financial markets – from October 1955 to August 1986 – and experienced only one day with as large of a percentage decline for the Dow as Monday’s move.

The tremors on Wall Street spread around the globe. Stocks in Europe and Asia posted heavy losses. Major markets in Europe shed roughly 2%, and stocks in Germany, Sweden and Spain fell into a correction. Japan’s Nikkei nosedived 4.7%, while Hong Kong’s Hang Seng suffered a loss of 5.1%. And then today, stocks on Wall Street bounced back. Actually, stocks started the session down 567 points … and then bounced into positive territory. The reversal covered more than 1,000 points on the Dow.

2017 will go down in stock market history for its volatility. Not because there was a lot of it―quite the opposite. The year featured one of the least-volatile stock markets in history, including a maximum drawdown of 2.8% (the smallest in history) and an average absolute daily price change of 0.3% (also the smallest in history). The most famous gauge of U.S. stock market volatility, the CBOE Volatility Index—VIX for short—reflected the unusually tranquil backdrop of 2017. It fell to as little as 8.56, the lowest level ever for the gauge, which had broken below 9 only once before in its history. In other words, complacency was arguably at a record high when the correction began last week. The fear generated by Wall Street’s sharp fall has been greatly magnified by the calm that preceded it. The VIX index of market volatility spiked by a record 116% on Monday, to the highest level in more than two years. It ripped higher again Tuesday, then calmed down. Near the end of the day the VIX was down more than 20%. While there is no direct trading in the VIX, it is used by a number of derivative securities including futures and exchange-traded notes as a reference for volatility. Today’s moves in the VIX comes after a stunning decline of more than 80 percent in after-hours trading Monday for the ETN VelocityShares Daily Inverse VIX Short-Term. XIV is issued by Credit Suisse and is supposed to give the opposite return of the VIX. Credit Suisse announced the last day of trading for XIV will be Feb. 20. The bank is triggering the liquidation of the product after its price collapse. There were many traders – hedge funds and trading desks – that were betting the markets would remain calm; it may take some time now to find where their bodies are buried.

Before the eight percent decline in United States stocks over the past week, the S&P 500 had gone two years without suffering a drop that large. Spoiled by this unnaturally placid stretch, many Americans had forgotten what a routine market setback even looks like. Going back three decades, the average market drop in any given year has typically been around 10 percent. What we are seeing now is a return to normal market behavior, which has never followed a straight line.

We should also point out that big declines and big gains are frequently clumped together. For example, back in October 2008, we saw some massive swings up and down. October 9, 2008 the Dow dropped 678 points. October 13, 2008 the Dow gained 936; two days later it dropped 733. October 22 saw a 514-point drop, and by October 28, 2008 there was a 889 point gain. Just a reminder – 2008 was not a good year for stocks. When the markets start swinging wildly, it means something is off. Yesterday, I told you “it’s important to note that recessions, and not valuations, trigger bear markets and no one is calling for a recession anytime soon.”

The stock market is not the economy. So the market plunge of the past few days might mean nothing at all. The sell-off might be nothing more than a scare. Stocks dropped a little, hit some technical sell points, sold off hard, and the next thing you know, there was a stampede for the exit. A day later, we look around and everything looks like a bargain. Still, valuations are on the high side. A widely used gauge of stock valuations puts them at a 15-year high, while a conceptually similar measure says that housing prices have retraced a bit less than half the rise that culminated in the great housing bust. So, stocks and housing are both a bit overpriced, but markets can be overpriced for a very long time. In other words, the markets can be managed effectively. It was not mere coincidence that Black Monday 2018 happened on the first day of Janet Yellen’s retirement and Jerome Powell’s first day as Fed Chair. Gradually the realization is dawning that the era when monetary policy provided unlimited support to markets is coming to an end; not that the Fed won’t try to bail out markets, but because they don’t have many arrows in their quiver. The point is that the markets are not real confident about where valuations are headed and how they will be managed.

And we are also trying to figure out where the economy is really going. It is good, but not as good as some would try to paint it. Contrary to the supposed “record job creation,” average monthly job gains in 2017 were 17% slower than the combined averages in 2015 and 2016, based on data from the Bureau of Labor Statistics. In fact, job growth in 2017 was its slowest pace since 2010. Similar disappointments can be found in America’s trade balance, which, according to Trump, has improved dramatically due to his “tough” negotiations and our resurgent manufacturing sector. But according to the U.S. Census Bureau, average monthly 2017 trade deficits (through November) were 11% wider than 2016, and 14% wider than the average over the prior 4 years. What’s worse is that these increases come at a time when a falling dollar, in theory, should have narrowed the gap. If markets do not see the promised economic growth from tax cuts, all we will be looking at is massive deficits from the tax cuts. And while Jerome Powell will likely go on to be a solid Fed Chair, you have to be a bit worried about the Keystone Cops who are in charge of fiscal policy in Washington.

We are two days from another government shutdown. Republicans and Democrats say they want to avoid a shutdown, and it is entirely possible there will be a continuing resolution to kick the can down the road a few more weeks. Then today, Trump said he’d welcome another government shutdown if Democrats refuse to meet his demands for an immigration overhaul, just as lawmakers close in on a deal to avoid another halt in federal operations. Trump said, “If we don’t change it, let’s have a shutdown. We’ll do a shutdown, and it’s worth it for our country. I’d love to see a shutdown if we don’t get this stuff taken care of.” The stuff is of course, immigration policy – which will not get done in the next couple of days.

After a day that saw safe-haven buying of Treasuries, investors returned to sort of hating bonds today. At around 2.77 percent, the yield on the benchmark 10-year Treasury has risen steadily from last year’s low of 2.04 percent in early September. That means the cost to borrow is going up for the government, companies and consumers. It’s especially concerning for the government, which is forecast to at least double its debt sales this year to more than $1 trillion, which would be the most since 2010, to make up for the lost revenue from the tax cuts. Oh — and the Federal Reserve is pulling back from its bond purchases. And inflation is picking up. This week is a critical test of demand, with the Treasury selling $66 billion in three-, 10- and 30-year securities. The auctions started today with the sale of $26 billion of three-year notes, an increase from the $24 billion that the Treasury has sought for that maturity in monthly auctions going back to the start of 2015. It didn’t go so well, as yields reached their highs of the day after strategists characterized the results as “soft.”

The U.S. trade deficit in December and for the full year both rose to the highest levels since 2008. The deficit in December rose 5.3% to $53.1 billion. In 2017, the U.S. trade gap leaped 12.1% to a nine-year high of $566 billion.

The number of job openings in the United States fell slightly in December to a seven-month low of 5.81 million. According to the JOLT survey, about 3.3 million people quit their jobs. The percentage of people in the workforce who walked away from their old jobs, known as the quit rate, rose a notch to 2.2%.